2023 (6) TMI 49 - HC - Income Tax

Reopening of assessment - validity of order passed u/s 148A(d) - Time limit for issuing notice u/s 149 - determination of the 'income chargeable to tax' - The amount of capital gain is to be considered or the entire sale consideration to be considered - HELD THAT - The words used in Section 149(1)(b) is that the 'income chargeable to tax' which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year. The income chargeable under the head of 'capital gains' which would arise in case of sale transaction is as provided under Section 48, which provides that income chargeable under the head of 'capital gains' shall be computed by deducting from the full value of the consideration, the cost of acquisition and in the event, the property purchased has been held for a period beyond three years in terms of second proviso to Section 48, the words, 'cost of acquisition' is to be substituted by the words, 'indexed cost of acquisition'. This material is pointed out in the reply at Annexure-'F1' furnished to the show cause notice, which ought to be taken note of prior to the issuance of notice under Section 148A of I.T. Act. Clearly when the procedure is followed culminating in an order passed under Section 148(A)(d), the Authority is required to apply its mind and consider the reply of the assessee and pass a considered order. In the present case, the respondent Authority has not applied its mind to the reply filed, nor noticed the legal position while deciding as to the application of the extended period under Section 149(1)(b) of the I.T. Act. In the present case, the words found in Section 149 which is 'income chargeable to tax' must be read in terms of 'income' as arising out of the 'Capital Gains' as provided under Section 48 and this is the only manner of understanding the words, 'income chargeable to tax under Section 149(1)(b) of I.T. Act. The contention of the Revenue that under Section 149 what is required to be taken note of, is the 'income that has escaped assessment' being the entirety of sale consideration of Rs.55,77,700/- cannot be accepted, in light of the express words in the statutory provision ' income chargeable to tax which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more'. The words used under Section 149 for the purpose of extended time limit is to be interpreted in terms of the plain wordings of Section 149 and cannot be construed differently while relying on any executive instruction. Thus order passed u/s 148A(d) set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Application of the extended time limit under Section 149(1)(b) of the Income Tax Act, 1961.

Summary:

Validity of the Notice Issued under Section 148:

The petitioner challenged the order dated 21.03.2023 under Section 148A(d) of the Income Tax Act, 1961 for the Assessment Year 2016-2017 and sought to quash the notice dated 21.03.2023 issued under Section 148 of the I.T. Act for the same assessment year. The notice under Section 148A(b) was issued on 03.03.2023, stating that income chargeable to tax had escaped assessment, based on information received. The petitioner responded on 16.03.2023, detailing the sale consideration and cost of acquisition, calculating the long-term capital gain as Rs.33,85,769/-. The petitioner argued that since the income escaping assessment did not exceed Rs.50 lakh, the notice under Section 148 could not be issued.

Application of the Extended Time Limit under Section 149(1)(b):

The petitioner contended that the notice issued on 21.03.2023 was beyond the three-year limit specified in Section 149(1)(a) and that the extended period under Section 149(1)(b) was not applicable as the income escaping assessment was less than Rs.50 lakh. The Revenue argued that the total sale consideration of Rs.55,77,700/- should be considered as the income that escaped assessment, justifying the extended period under Section 149(1)(b).

Court's Analysis and Decision:

The court noted that the income stated to have escaped assessment was the sale transaction amounting to Rs.55,77,700/-. However, for capital gains, Section 48 provides for the computation of income chargeable under the head 'Capital Gains' by deducting the cost of acquisition from the full value of the consideration. The court emphasized that the words "income chargeable to tax" in Section 149(1)(b) must be interpreted in terms of Section 48, which considers the indexed cost of acquisition.

The court held that the respondent Authority failed to apply its mind to the petitioner's reply and the legal position while deciding on the application of the extended period under Section 149(1)(b). The court rejected the Revenue's contention that the entirety of the sale consideration should be considered as the income that escaped assessment.

The court set aside the order dated 21.03.2023 under Section 148A(d) and the notice dated 21.03.2023 issued under Section 148 for the Assessment Year 2016-2017. The writ petition was accordingly allowed.